Fantasia raises $408 million in yet another property IPO

Fantasia Holdings has priced its initial public offering close to the top end of the range for a total deal size of HK$3.16 billion ($408 million), after receiving good demand from both institutional and retail investors.

The positive outcome provides further confirmation that the sentiment for property IPOs is improving after a tough October when most property IPOs traded down in the secondary market and valuations were forced lower and lower. One IPO candidate, Excellence Real Estate Group, called off its listing altogether after weak demand and Mingfa Group (International) re-launched its offering at a reduced price after failing to secure sufficient interest.

Since then, however, Evergrande Real Estate Group has gained 25.4% since its trading debut on November 5 and Longfor Properties has raised $912 million in a well-received offering that was priced at a higher valuation than any other property IPO in the past two months. Longfor is due to start trading in Hong Kong today.

When Fantasia launched its roadshow on November 9, the market was still deemed to be quite challenging, however, and valuations were kept in line with most of the property companies before it. Consequently, the company is looking relatively more attractive as the market conditions have improved. For one, Evergrande's IPO valuation of 5.5 times 2010 earnings has been creeping up to 6.9 times since it started trading.

Fantasia's offering price range of HK$1.75 to HK$2.20 implied a 2010 price-to-earnings multiple of between 5.25 and 6.6 times. The final price was fixed at HK$2.18 for a P/E multiple of 6.5. The decision not to price at the top, even though there was sufficient demand to do so, was said to have been taken partly as a nod to the investors who participated in the IPO. However, a source said the company also hoped that ending the IPO price with an "eight", which is a lucky number in China, will bring good luck when the stock starts trading on November 25.

According to the same source, the institutional tranche was 40 times covered and included a mixture of high-quality institutional investors, private banking investors, corporate and brokerage orders. As reported earlier, the deal also included six cornerstone investors, which bought a combined $63 million worth of shares.

The retail tranche was about 155 times covered, which triggered a full clawback that increased the retail portion of the deal to 50% from 10% originally.

The company sold 1.45 billion shares, of which 83.3% were new. The remainder was being sold by two real estate funds that are majority-controlled by HSBC and an affiliate of Goldman Sachs, respectively, which invested a combined $100 million into Fantasia in December 2007. Goldman will still hold about 13.1% in the company after the IPO, while HSBC's stake will drop to 10.8%.

The base deal accounted for about 29.8%, although there is also a 15% greenshoe, which could increase the total deal size to $469 million and the portion of the company that were sold to 33%.

Fantasia was founded in Shenzhen in 1996 and currently operates in Sichuan, the Pearl River Delta, the Yangtze River Delta and in the Beijing and Tianjin metropolitan areas, places which are all experiencing strong growth. Around 70% of its land bank is located in the Chengdu-Chongqing Economic Zone, which makes it look somewhat similar to Longfor. The latter is the leading residential developer in Chongqing, although it also has a top position in Chengdu and Beijing and is aspiring to become a nationwide player.

Fantasia focuses on urban developments, located at the outskirts of major cities and consisting of offices, apartments and shops, as well as on upmarket housing made up of apartment blocks and townhouses. Residential property accounts for approximately 60% of its land bank.

BOC International, Citic Securities, Deutsche Bank and Goldman Sachs were the joint bookrunners.